DERIVATIVES

              Introduction & Brief History

Derivatives have come into existence around 300 years before in the world in the commodities. It initially emerged as a hedging devises against fluctuations in commodity prices between growers & users of commodity such as wheat and mill owners of breads. Financial derivatives have come into existence during 1970s and became immensely popular from 1990 onwards.

17^th century Europe – Agricultural product speculators used future/forward contracts. In India. Badla ie carry forward transaction was in operation which was discontinued in 1993.

In the year 1969 options were discontinued but in 1995, prohibition was withdrawn. In the year 1999, derivatives were brought under “Securities” and in between 2000 to 2001: the trading in futures and options on indexes and individual securities were started.

 

         Factors driving the growth of Derivatives

i)          There is tremendous growth in derivatives in the last 35 years for the following

            reasons.

i)                      increased volatility for super profits (and off course super loss)

ii)                    Interrogation at national and international levels.

iii)                  Improved communication in lesser cost.

iv)                  Sharp fall in costs of transaction.

v)                    Large varieties of derivatives